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When does 32,200 – 60,000 = 109,000? That seemingly inaccurate equation represents the estimated number of Islamist-inspired terrorists when the war on terror began, how many the U.S. has killed since 2015, and the number that fight today. And it begs the question of just how can the terror ranks grow so fast when they’re being depleted so rapidly.

As early as 2003, then-Secretary of Defense Donald Rumsfeld hinted at the potential mathematical problem when he asked, “Are we capturing, killing, or deterring and dissuading more terrorists every day than the madrassas and the radical clerics are recruiting, training and deploying against us?” In his memo, Mr. Rumsfeld correctly identified that both sides have a vote: the U.S. can deplete the terror ranks, while the terror groups and their supporters can replenish them.

What Rumsfeld had not yet imagined, however, was the possibility that military force might inadvertently benefit terror recruitment efforts. Specifically, he ignored the blowback a marauding U.S. military might engender among the Muslim world.

In 2009, General Stanley McChrystal pushed the conversation in that direction. He pointed to the counterintuitive aspects of terror recruiting. Calling it “COIN Mathematics,” he laid out his argument. “Let us say that there are 10 [insurgents] in a certain area. Following a military operation, two are killed.  How many insurgents are left?  Traditional mathematics would say that eight would be left, but there may only be two, because six of the living eight may have said, ‘This business of insurgency is becoming dangerous so I am going to do something else.’ There are more likely to be as many as 20, because each one you killed has a brother, father, son and friends, who do not necessarily think that they were killed because they were doing something wrong. It does not matter – you killed them.  Suddenly, then, there may be 20, making the calculus of military operations very different.” 

Though McChrystal did not explicitly connect U.S. military operations to the perceptions of the broader Muslim community, Osama bin Laden and his number two, Ayman al-Zawahiri, certainly did. Five years before 9/11, bin Laden railed against the presence of the U.S. military in Saudi Arabia, home to the two holiest sites of Islam. On other occasions he spoke of the “American crusader forces” and “American occupiers.” His recurring theme of grievance centered on the U.S. waging war with Islam. Later, in 2005, al-Zawahiri put an exclamation point on it. In a letter to the leader of al Qaeda in Iraq, he reminded him, “The Muslim masses…do not rally except against an outside occupying enemy, especially if the enemy is firstly Jewish, and secondly American.”

Polling indicates that bin Laden and al-Zawahiri’s strategy has significant traction throughout Muslim-majority countries. When asked if “the United States’ interference in the region justifies armed operations against the United States everywhere,” more citizens agreed than disagreed among the 11 nations surveyed. That staggering trend even held true among the populations of supposed allies like Kuwait, Jordan and Iraq. Only in Egypt did more disagree than agree, though 39% still expressed support for attacks on Americans everywhere.

The implication is clear: it is time to stop focusing on killing terrorists. The seventeen-year American military campaign against terrorism, which began in Afghanistan but spread to Pakistan, Iraq, Yemen, Libya, Syria, Somalia, and most recently to Niger, has failed to stem the jihadist tide and has created more problems than it has solved. It has also cost the United States nearly 7,000 lives, more than 52,000 wounded, and an estimated 5 trillion dollars.

The idea that the United States should kill fewer terrorists may strike some as heresy and others as simply foolish. But as General McChrystal said, “I have found that the best answers and approaches may be counterintuitive; i.e. the opposite of what it seems like you ought to do is what ought to be done.” 

So if killing terrorists isn’t working, what will? We do not pretend to have all the answers. But the time-honored military practice of “murder boarding” may help provide inspiration. Despite its ghoulish name, “murder boards” have been successfully used throughout America’s military history. The process, as the name implies, is meant to be merciless. The privilege of military rank gets set aside, as does the pride of those assembled. The goal is to assess – as objectively as possible – through all that has happened to avoid repeating mistakes and to ensure mission success.

Sixteen years in, the President and Congress should finally “murder board” the war on terror and consider new strategies. Until then, counterinsurgency math will continue to frustrate the country’s lacking strategy.

Rumors abound that the Trump administration will soon pursue “significant” retaliatory actions in response to alleged Chinese intellectual property rights (IPR) violations, pursuant to “Section 301” of U.S. trade law. While Chinese government IPR policies are indeed cause for concern and while Section 301 does permit the U.S. executive branch to act unilaterally in response to certain foreign trade actions, there is a smart and a not-so-smart approach to these issues, with the latter likely to be unintended by Congress, inconsistent with U.S. trade agreement obligations, ineffective, harmful for U.S. consumers and exporters, and met with a legitimate rebuke from not only China but also other U.S. trading partners. The alternative, on the other hand, would present the President with a golden opportunity to pursue a smart U.S. trade policy response to a serious issue that could achieve the same objectives as the other option, but in a more strategic and effective manner.

If reports are to be believed, the President is unfortunately not inclined to take the smart approach.

Section 301 of the Trade Act of 1974 provides the U.S. executive branch with the authority to enforce U.S. rights under international trade agreements and to respond to certain foreign “unfair” practices not covered by trade agreements. Section 301 is the principal statutory mechanism under which the President may unilaterally (1) determine that a foreign country has violated existing trade agreements or has engaged in acts that are “unjustifiable” or “unreasonable” and burden U.S. commerce; and (2) take retaliatory action to enforce U.S. rights under a trade agreement or to obtain the elimination of the foreign country act in question. The United States Trade Representative (USTR) makes determinations, initiates and conducts investigations, and implements any retaliatory action under Section 301.

Prior to the advent of the World Trade Organization (WTO) dispute settlement system in 1995, USTR frequently invoked Section 301 to seek to eliminate “unfair” foreign government trade practices. The mechanism’s frequent use was in large part due to the fact that the WTO’s predecessor – the General Agreement on Tariffs and Trade (GATT) – provided for less coverage and less accountability than the new WTO system. With the WTO now online and with new WTO rules against Members’ unilateral retaliation (more on this below), Section 301 fell into disuse, with only a few actions since the late 1990s.

In August of last year, however, USTR initiated an investigation of China under Section 301, which sought “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.” USTR’s notice of initiation lists four types of conduct that were to be examined in the investigation (emphasis mine):

  1. The Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies;
  2. The Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China;
  3. The Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in strategic industries; and
  4. The investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information.

USTR’s findings are officially due by August 2018, but various media outlets report that the Trump administration’s USTR has already completed the Section 301 investigation and is now considering whether to impose steep tariffs on a large swath of Chinese imports. Inside U.S. Trade[$] says that “the 301 remedies against China would include what some called ‘significant’ tariffs covering retaliatory action in the trillion-dollar range,” with USTR arriving “at such a high number by calculating the cumulative damage the U.S. believes China’s IP and tech transfer policies have caused over the past 10 years.” Private groups are expecting tariffs because, as one source put it, “[Trump] seems to like tariffs, not because they’ll do much good.” Axios generally agrees, noting that it’s likely Trump in January will “put tariffs on Chinese consumer electronics as retaliation against the country’s widespread theft of American companies’ intellectual property.”

A massive unilateral tariff response by the United States would be a big mistake rife with legal and economic problems. This is unfortunate because there is widespread, bipartisan agreement in the United States that Chinese IPR practices are a problem – a concern shared by many U.S. trading partners – and because, as noted below, there’s a far smarter approach to this problem under Section 301.

On the other hand, tariffs of the sort mentioned above raise at least four serious concerns:

  • First, they could defy the will of Congress, which has delegated through Section 301 its constitutional authority over U.S. trade policy but has expressly directed USTR to take unilateral action under Section 301 for only those foreign trade barriers that fall outside of the WTO Agreements. The binding Statement of Administrative Action (SAA) for the Uruguay Round Agreements Act, which implemented the WTO Agreements into U.S. law, states that USTR “will” (not “may” or “could”) invoke the WTO’s dispute settlement procedures for any “alleged violation of a Uruguay Round agreement or the impairment of U.S. benefits under such an agreement”; the SAA adds that “[n]either section 301 nor the DSU will require the Trade Representative to invoke DSU dispute settlement procedures if the Trade Representative does not consider that a matter involves a Uruguay Round agreement.”

    The SAA thus makes clear that USTR cannot act unilaterally against foreign trade policies falling under the WTO Agreements and instead must bring a WTO dispute (and, if necessary, retaliate after receiving the WTO’s agreement that a trade violation indeed exists). This is precisely what the Obama administration did in a 2010 Section 301 investigation of China’s green energy subsidies, which resulted in a WTO dispute (subsequently joined by the EU and Japan) and China’s voluntary elimination of the subsidies at issue. The SAA also list certain policies, such as anti-competitive practices and IPR actions that “fall outside the disciplines of [the applicable WTO] agreements,” for which unilateral Section 301 retaliation would remain viable.

    USTR retains the sole discretion as to whether an issue falls under the WTO Agreements – a potential excuse for the Trump administration’s unilateralism in the current case. However, USTR’s decision may be subject to challenge at in U.S. courts, and there is a very strong argument that most of the Chinese practices that USTR has targeted are actually covered by the WTO – either through the WTO Agreement on Trade Related Intellectual Property Rights (which the U.S. successfully invoked in a 2007 WTO dispute that, again, led to China’s voluntary elimination of the IPR measures found to be inconsistent with the Agreement) or through the “WTO-plus” commitment that China made as part of its accession to the WTO. In particular, China’s WTO Accession Protocol (Article 7.3) requires China to ensure that “the distribution of import licenses, quotas, tariff-rate quotas, or any other means of approval for importation, the right of importation or investment by national and sub-national authorities, is not conditioned on…performance requirements of any kind, such as local content, offsets, the transfer of technology, export performance or the conduct of research and development in China.” USTR could attempt to argue that China’s technology transfer or licensing requirements (i.e., allegations 1-3 above) don’t implicate this commitment, but the breadth of Article 7.3 (and USTR’s own characterization of the investigation as focusing on “technology transfer”) would make that a real stretch – one that Congress or U.S. companies might not be willing to accept.

  • Second, and relatedly, broad retaliatory tariffs under Section 301 would almost certainly be challenged by China at the WTO and could actually result in a WTO panel ruling that both the tariffs and the law itself were inconsistent with the United States’ WTO obligations. A core tenet of the WTO, carried out in the SAA, is that each Member will not act unilaterally in response to a foreign trade action that supposedly violates the WTO Agreements and instead will pursue formal dispute settlement through the WTO. In the late 1990s, the EU challenged Section 301 as inconsistent with this fundamental rule, but a WTO Dispute Settlement Panel found that, although unilateral action taken by the United States pursuant to Section 301would constitute a prima facie violation of the WTO Agreement, the SAA and representations by the U.S. government during the dispute removed the threat of a violation and thus the aforementioned inconsistency. If the Trump administration were to depart from the U.S. representations made to the Panel by unilaterally adjudicating Chinese IPR practices that fall under the WTO Agreements and by imposing remedies (i.e., tariffs) that also fall under the WTO Agreements, this finding of consistency may no longer be warranted.

    WTO rulings against the Trump administration’s Section 301 action could provide China with authorization to retaliate against American exports – but unlike the U.S., under the cover of international respectability and lawfulness (cover that might also obscure the Chinese government’s own, more “creative” unilateral retaliation against American companies). Even worse, other WTO Members would likely join China in condemning the United States’ chest-thumping unilateralism, perhaps even joining in on the underlying WTO dispute challenging the overall lawfulness of Section 301. So, in one fell swoop, the Trump administration could expose its exporters to WTO-consistent foreign retaliation, kill the remaining legitimacy of Section 301, and paint the United States as a global scofflaw (and China as the law-abiding victim). That’s a trifecta of bad, totally-avoidable outcomes.

  • Third, if history is any guide, these Section 301 tariffs probably won’t result in actual changes in Chinese Government policy. As I wrote last summer, past (pre-WTO) efforts to remove foreign-trade barriers unilaterally through Section 301, produced, at best, mixed results: U.S. negotiating objectives were “successfully” achieved less than half the time (35 cases, or a 48.6 percent “success ratio”), most often when the targeted country was dependent on the U.S. market. Even more damning, retaliation (tariffs, suspension of preferential access, etc.) under Section 301 achieved U.S. negotiating objectives only 17 percent of the time it was used.  These dismal results stand in stark contrast to the United States’ impressive (well over 80 percent) success rate at the WTO – and, as indicated by the examples above, China’s eventual compliance in response to U.S. WTO challenges. It beggars belief that, given China’s domestic political situation and the fact that the United States accounts for only 18.3 percent of all Chinese exports, Trump’s loud unilateralism under Section 301 would actually push China to change course on IPR.
  • Finally, it must be noted that U.S. tariffs “in the trillion-dollar range” could impose significant costs on American families and businesses. As I wrote for National Review in 2016:

    The consumer gains from trade disproportionally accrue to America’s poor and middle class. A 2015 study by Pablo Fajgelbaum and Amit Khandelwal finds that these groups, because they concentrate spending in more-traded sectors such as food and clothing, enjoy almost 90 percent of the consumer benefits of trade. These benefits are even more concentrated for Chinese imports, since poor and middle-class American consumers are more likely than their richer counterparts to shop at “big box” stores such as Target and Walmart that carry a lot of made-in-China goods.

    American businesses, of course, also benefit. More than half of all imports (including those from China) are inputs and capital goods consumed by other American manufacturers to make globally competitive products. Raising these firms’ costs via tariffs would mean fewer employees, if not outright bankruptcy — a particularly bad outcome given that downstream industries (e.g., steelmakers) typically employ far more workers than their upstream counterparts (e.g., steel users). Non-manufacturers benefit, too — whether they be retailers such as the Gap, transportation and logistics companies such as FedEx, or multinational firms such as Apple, which assembles iPhones in China but generates most of their final sale price through marketing, design, engineering, and even manufacturing done in the United States. (Chinese manufacturers themselves earn only a few dollars from an iPhone’s assembly.)

If Trump does indeed slap high tariffs on a large swath of consumer electronics from China, that means pain for lower-income Americans (right before the Super Bowl and peak HDTV season!), U.S. companies involved in the targeted products’ supply chain, and struggling U.S. retailers. Ouch.

In sum, broad retaliatory tariffs under Section 301 in this case would likely impose high political, economic and legal costs, while likely failing to achieve needed policy changes in China. These problems do not mean, however, that the Trump administration is powerless to act here. Instead, a smart course of action could entail both unilateral and multilateral responses that would be more consistent with U.S. law and WTO rules, more likely to achieve Chinese policy changes, and less likely harm U.S. economic and geopolitical interests. In particular: (1) a broad WTO dispute following the procedures set forth in Section 301 and the SAA and joined by other WTO Members with similar complaints against Chinese IPR practices; and (2) a targeted unilateral response for those Chinese government acts (e.g., allegation 4 above on state-sponsored hacking) that clearly fall outside the WTO Agreements. The first U.S. action would reassert the United States’ leadership on an important global trade issue and deny China that same position, while the second U.S. action would let President Trump brag about his strong unilateral response to Chinese “economic aggression” (though he’d need to use something other than tariffs to be perfectly consistent with WTO rules).

If the latest reports are to be believed, however, it’s unlikely that the President will pursue this course and will instead demand big, broad tariffs. If so, the costs will likely be significant – not just for U.S. consumers and exporters, but for the future of U.S. trade policy more broadly.

The views expressed herein are those of Scott Lincicome alone and do not necessarily reflect the views of his employers.

Democracy in America can only work when members of the public are free to participate in the political process. That’s exactly what Fane Lozman was trying to do when a Riviera Beach, Florida, city official ordered him arrested 11 years ago.

Lozman sued the city, arguing that his arrest was in retaliation to his First Amendment-protected criticism of city policies and corruption. Before this arrest, city council members were on record suggesting “intimidating” him due to his opposition of the city’s redevelopment plan. The city had also made Lozman “the target of a string of legal pressures,” including attempting to evict him from the local marina (which a jury found to be retaliation for Lozman’s First Amendment expression), arresting and removing him from a different council meeting, and much more.

Despite all that, the U.S. Court of Appeals for the Eleventh Circuit ruled that Lozman was barred from suing the city because there may have been probable cause for his arrest, and further that the existence of probable cause categorically barred a claim for retaliatory arrest. What’s worse is that the crime for which “probable cause” the city relies on—“disturbance of a lawful assembly”—wasn’t mentioned or identified until trial eight years later.

The Supreme Court agreed to hear the case. Because a categorical bar on First Amendment retaliation claims for arrests supported by probable cause would deal a serious blow to our First Amendment freedoms, Cato joined the Institute for Justice on an amicus brief supporting Lozman. Under the lower court’s approach, courts would be forbidden from looking into the government’s motives in retaliatory-arrest cases the way they do with ease in other First Amendment retaliation cases. This would encourage local governments simply to arrest dissenters, knowing endless justifications could be manufactured after the fact and virtually eliminating any constitutional check on their retaliation.

For example, the offense that was ultimately claimed as the basis for Lozman’s arrest—“disturbing a lawful assembly”—requires only that one act with reckless disregard for whether one’s conduct will “impede the successful functioning of the assembly.” That vagueness could include anyone who speaks passionately at a public meeting. The result is to insulate arresting officials from liability even where, as here, the circumstances of the arrest strongly indicate a retaliatory motive.

Whether your First Amendment rights are protected should not be predicated on how the government infringes them, but that is the result of requiring judges and juries to close their eyes to the reasons for arrests. In these cases, there’s no reason to keep a jury from assessing that motivation and holding the government liable if the arrest was in retaliation for protected speech.

Retaliation forces the intolerable choice of speaking out and facing personal jeopardy or keeping silent. Faced with that choice, all but the most courageous will keep quiet—undermining the “uninhibited, robust, and wide-open” debate on public issues that the First Amendment protects. If the Supreme Court lets the lower court’s decision stand, local governments seeking to silence political activists will be empowered to abuse them. 

This is from Marc Thiessen, writing in the Washington Post:

Trump inherited a regulatory state that had grown to unprecedented levels under President Barack Obama. One way to measure the growth in regulations is by counting the number of pages in the Federal Register, the book the government publishes containing all new regulations. Seven of the eight largest annual page totals in American history occurred under Obama. Before Obama, no president had ever exceeded 80,000 pages in the Federal Register. In 2016, Obama became the first president to break the 90,000-page mark—96,702, to be exact—and if you add his last 20 days in office, the total reaches 103,432.

Trump cut that number nearly in half. From Jan. 23 through Dec. 19 of this year, he has added just 53,550 pages to the Federal Register. And many of those pages were not new regulations but announcements of regulations being withdrawn. His efforts exceeded even those of President Ronald Reagan, who cut Federal Register pages by more than one-third during his time in office.

This sounds like good news, although perhaps it is partly due to the Trump administration taking a while to get its bearings during its first year. If it ever gets around to infrastructure, as Trump keeps threatening, we may see a lot more regulating. In addition, I thought it was worth pointing out that in trade policy, we are going in the opposite direction, as the Trump administration proudly proclaims the increase in regulatory actions it is taking. Here’s something from a recent press release from the Commerce Department:

Enforcement of U.S. trade law is a prime focus of the Trump administration. From January 20, 2017, through December 18, 2017, Commerce initiated 79 antidumping and countervailing duty investigations—a 52 percent increase from 52 initiations in the previous year. 

To clarify, there is an existing set of laws and regulations that allow companies and unions to petition the U.S. government to impose extra tariffs on their foreign competitors, in the form of antidumping and countervailing duties. There may be multiple reasons for the increase pointed out by the Commerce Department, and much of this would likely have happened even under a President Hillary Clinton. Nevertheless, when you hear people tout Trump’s push for lessening the burden of regulation, keep in mind that with trade policy, we are seeing a regulatory expansion, including the investigations noted above, as well as, potentially, other new measures under consideration.

Amy Fabbrini and Eric Ziegler of Redmond, Oregon have not been accused of abuse or neglect, and “both have standard high school diplomas,” reported Samantha Swindler in The Oregonian this summer. But the state of Oregon deems their IQs to be too low and has seized their two sons in what has turned into a four-year battle.  

I was a guest in August on Glenn Beck’s radio show to discuss the case. The Blaze summarizes:

Essentially, the state doesn’t have to prove anything definite to take away a child; the argument is that they are going by the expert’s recommendation for what’s best just in case something could happen. In Fabbrini’s case, her estranged father has told authorities that she is an unfit mother; however, people closer to her have vouched for her ability to parent.

“If they [authorities] want to take your child, they’ve got him,” Olson said….

“It’s been called [‘worst-first’] thinking,” he explained. “If you’re in the child protection business, then, you know, everything looks like a danger. … You always think the worst possible thing could happen.”

And now, from The Oregonian, word of a joyous—though only partial—reunion

Four days before Christmas, a Redmond couple received their miracle. Amy Fabbrini and Eric Ziegler’s 10-month-old son Hunter will spend his first Christmas at home after a judge found the couple’s limited cognitive abilities did not make them unfit to parent.

But the ruling does not reverse the termination of the couple’s parental rights over 4-year-old Christopher, who is deemed to have more complex needs because of developmental hurdles; they will be back next month in court to fight that. 

As they say, hug your loved ones close this holiday season and rejoice if you have the good fortune to be together (adapted from Overlawyered).

The New York Times recently covered the downfall of Cape Wind, the planned installation of 160 wind turbines off the coast of Massachusetts. The article portrays Cape Wind, and its founder Jim Gordon, as clean energy martyrs and the determined affluent opponents, who did not want their ocean views impaired, as villains. While the opposition to the project played a role, Cape Wind power also would not have been competitive in the marketplace.

Two Regulation articles have described the economic problems of Cape Wind. Ryan Murphy and Sophia Morales discuss  Cape Wind’s prices. Even with hundreds of million dollars in government subsidies, the off-shore wind farm would still have charged 26.4 cents per kilowatt hour in 2023. Compared to both traditional energy sources and other green energy—10.5 cents per kWh from a Canadian wind farm and as low as 6 cents per kWh from Quebec hydroelectric—Cape Wind prices would have been high.

Supporters of green energy projects often argue that they help create jobs. The Times article even mentions in passing that Cape Wind would have spurred other wind farm projects on the East Coast. In the Winter 2009-2010 issue, however, John Lesser analyzes this claim. While subsidized green energy creates some visible jobs, it increases the price of electricity and thus eliminates other jobs indirectly. As Lesser argues, “This course of action will cost jobs because businesses, forced to pay higher electricity prices, will either relocate, contract, or disappear altogether.”

The story of Cape Wind, despite the narrative the Times presents, is one of bad economics. The protracted political battle and the fact that it took this long for the project to officially end speak less about the viability of Cape Wind and more about the damage caused by green energy subsidies.

Written with research assistance from David Kemp

Like all states, California has licensed medical centers of every kind. One particular type, often known as a “crisis pregnancy center,” provides pregnancy-related services with the goal of helping women to make choices other than abortion. Based on opposition to these centers, the California legislature enacted a law, the FACT Act, requiring licensed clinics “whose primary purpose is providing family planning or pregnancy-related services” to deliver to each of their clients the following message: “California has public programs that provide immediate free or low-cost access to comprehensive family planning services (including all FDA-approved methods of contraception), prenatal care, and abortion for eligible women.” But the law also creates an exception for clinics that actually enroll clients in these programs—so, in effect, the law applies only to clinics that oppose the very program they must advertise.

Several of these crisis pregnancy centers sued to block the law, arguing that it violated their First Amendment rights by forcing them to express a message to which they are opposed. But the U.S. Court of Appeals for the Ninth Circuit upheld the law, holding that it regulates only “professional speech” and therefore should be reviewed under a more deferential standard, rather than the normal strict judicial scrutiny that applies to laws compelling speech. The Supreme Court agreed to review that ruling in a case called National Institute of Family and Life Advocates (“NIFLA”) v. Becerra. Cato has filed a brief urging the justices to correct the lower court’s flawed reasoning.

Among its many problems, the lower court’s definition of “professional speech” is dangerously overbroad: it doesn’t limit restrictions to a professional’s specialized knowledge or require that the speech be appropriate to each client’s individual circumstances. By determining that the compulsory message required by the FACT Act is merely a regulation of professional speech, the Ninth Circuit both blessed the commandeering of professional speech to deliver any favored government message under the guise of protecting public health and gave itself permission to apply intermediate, rather than strict, scrutiny—contrary to Supreme Court precedent—to determine that the Act’s disclosure requirements are constitutional.

Compelled speech is potentially dangerous in any context. It violates the freedom of conscience that the First Amendment is meant to protect and allows the government to promote any message it deems desirable, which is why it typically receives the most exacting scrutiny. Likewise, by discriminating based on content—because the state mandates an exact message—and on the speaker’s viewpoint—by regulating only pro-life centers who do not already participate in the programs the state wishes to advertise—the FACT Act must be examined under strict scrutiny. That is, the law must be narrowly tailored to serve a compelling interest that can’t be achieved in any other way.

This is a test the law can’t survive because (1) exemptions to the disclosure requirements illustrate that they are underinclusive, and (2) any number of other methods for distributing the same information exist that wouldn’t impose significant burdens on speech.

In NIFLA v. Becerra, the Supreme Court should reverse the Ninth Circuit.

If we were creating our nation’s housing mortgage regulatory environment from scratch it would not look anything like our current morass, most people would agree. For instance, it is doubtful that anyone would agitate for creating anything akin to Freddie Mac and Fannie Mae, the government-sponsored enterprises that–now almost exclusively–buy, bundle, and resell home mortgages, let alone suggest that the government provide those mortgages an explicit guarantee. Countries without our heavy government footprint in the mortgage market–which includes the mortgage interest deduction as well as a near-universal 30-year mortgage–manage to achieve home ownership rates that exceed our own.

However, we are not starting from scratch, and political constraints preclude getting rid of Fannie Mae and Freddie Mac, so we need to ask what’s the best way to fix the financial scaffolding of the domestic housing market given that Fannie and Freddie–or some iteration thereof–are here to stay.

And for the record it is clear that there is a problem afoot: as I explained earlier this year, new housing starts post-great-recession have been well below historical levels: For instance, 2016 was the post-recession high and it was still below any non-recession year in the last half-century. Part of that decline has to do with a myriad of new regulations boosting the cost of home construction, and another part has to do with the senseless accretion of land regulations in Blue America, but it is also the case that for many it remains more difficult than it should to obtain a mortgage.

The result of these constraints is that in much of America, housing costs constitute a greater proportion of household income than at any other time since World War II, and an increasing share of households spend more than a third of their take home pay on housing costs.

One major cause of the mortgage market morass has been that Fannie and Freddie have little capital at their disposal. The Third Amendment–a 2012 Treasury directive from the Obama Administration mandating that Treasury “sweep” the net worth of the two entities into its coffers each quarter–has left them with insufficient working capital to do what the law tasks them to do. In 2018 they will, in fact, have no capital at all at their disposal unless and until Treasury acts to give them some. What’s more, tax reform has–albeit inadvertently–increased its need for a capital injection.

The hope of those who want a reform of the status quo was that the optics of a Treasury “draw” by the GSEs next year would be a motivating factor for Congress to resolve their status, but it is not clear that will, in fact, light a fire under Congress. There is some manifestation of Congressional dissatisfaction with the current mess-some members of the Senate Banking Committee–on both sides of the aisle–have been discussing some sort of reform, and Rep. Jed Hensarling–chair of the House Financial Services Committee–has begun working in earnest in an attempt to achieve some sort of bipartisan solution to the GSE limbo.

However, the odds of a substantive bipartisan bill getting through the Senate in the current environment are slim; among other reasons, it is difficult to see Senator Elizabeth Warren agreeing to what would undoubtedly be an unsatisfactory patch when the Democrats could conceivably be in charge of Congress in 12 months and legislate their own solution.

The political gridlock, along the approach of 2018 and the prospect of two GSEs becoming bereft of capital, has prompted Mel Watt, director of the Federal Housing Finance Authority, to announce that the GSES will retain $3 billion of capital to ensure they can keep doing their business.

Given the current gridlock it was a prudent step to take. It will not prevent the need for the GSEs to draw funds from Treasury at some point in 2018, but it will ensure that they can continue doing what they are supposed to do for the foreseeable future.

However, the GSEs need more than this palliative–Congress needs to address the current housing finance crisis in a timely fashion if the housing market is ever going to return to normalcy. Here’s hoping that 2018 results in a reform of our mortgage financing regulatory world that concomitantly reduces government exposure to the vagaries of financial markets while boosting the supply of housing in the U.S.

The Wall Street Journal reported December 14 on a proposal by Massachusetts Governor Charlie Baker to mandate the involuntary 72-hour detention of opioid overdose survivors rescued by first responders. This is another example of feel-good public policy that strains resources and personnel, arguably infringes the civil liberties and due process rights of those detained, and won’t work as intended.

While mandatory rehab has been employed in the criminal justice system for years, the rationale for this has not been evidence-based. A systematic review of over 400 studies on the subject published in the International Journal of Drug Policy in 2016 concluded, “Evidence does not, on the whole, suggest improved outcomes related to compulsory treatment approaches, with some studies suggesting potential harms.”

Furthermore, while the precise length of time needed for successful rehab is uncertain, 3 days is barely enough time to go through acute withdrawal.  Even if the 3 days are used to plug the patient into Medication-Assisted Treatment, significant numbers of MAT patients eventually drop out of these programs. Self-motivation and self-regulation play significant roles in successful rehab.

The alarm and frustration of policymakers addressing the overdose crisis is understandable and justifiable. But lashing out with new approaches that are not empirical or data-driven will not fix the problem and may make matters worse.

 

The Department of Homeland Security (DHS) and the Department of Justice (DOJ) today released a report that found that about 94 percent of foreign-born inmates in Federal prisons are illegal immigrants.  That is not surprising, as illegal immigrants convicted of an immigration offense are incarcerated in federal prison and account 7.3 percent of all inmates.  Likewise, drug traffickers who cross international borders are also in federal prison and account 46.3 percent of all prisoners.  Thus, illegal immigrants are overrepresented in federal prison because the federal government enforces immigration laws and many drug trafficking laws but only a small fraction of all those incarcerated for all crimes committed in the U.S. are in federal prisons. 

The authors of this DHS/DOJ report do deserve credit for highlighting its shortcomings.  On the first page, it states:

This report does not include data on the foreign-born or alien populations in state prisons and local jails because state and local facilities do not routinely provide DHS or DOJ with comprehensive information about their inmates and detainees.  This limitation is noteworthy because state and local facilities account for approximately 90 percent of the total U.S. incarcerated population.

The federal prison population is not representative of incarcerated populations on the state and local level, so excluding them from the report means that it sheds little light on nationwide incarcerations by nativity, legal status, or type of crime.  On the last point, it is shocking how unrepresentative federal prison is regarding the types of crimes its inmates are convicted of. In 2016, 67,742 people were sentenced to federal prison.  Almost 30 percent of them were for immigration offenses.  Those immigration convictions comprised 100 percent of the convictions for immigration crimes in the United States in 2016.  By contrast, there were only 85 federal convictions for murder out of a nationwide total of 17,785 murder convictions that year, comprising less than 0.5 percent of all murders.

    

If Garcia Zarate had actually been convicted of murdering Kate Steinle, then he would have been incarcerated in California state prison and he would not show up as an illegal immigrant murderer in this DHS/DOJ report.  What good is a federal report on illegal immigrant incarceration rates if it would have excluded Kate Steinle’s murderer had he been convicted? 

The DHS/DOJ report also explained why they did not include an estimate of illegal immigrants incarcerated on the state and local level:

DHS and DOJ are working to develop a reliable methodology for estimating the status of state and local incarcerated populations in future reports.

A March 2017 Cato Institute Immigration Research and Policy Brief employed a commonly used residual statistical methodology to analyze the incarcerated population in the U.S. Census for 2014.  We found that illegal immigrants were about 44 percent less likely to be incarcerated than native-born Americans.  I look forward to reviewing any methodology that the federal government comes up with but illegal immigrant criminals would have to be severely undercounted in prisons to give them an incarceration rate that even approaches native-born Americans.     

The broad finding among criminologists and economists who study this topic is that immigrants are less crime-prone than natives whether measured by the areas where they live or their incarceration rates.  Although there is less research on illegal immigrant criminals, the general finding is that they are less crime-prone or about as criminally inclined as native-born Americans.  The DHS/DOJ report reveals no new information about incarcerations on the federal level, does not provide evidence for a higher nation-wide illegal immigrant incarceration rate, nor does it support the administration’s plea for more border security.    

National Review’s Ramesh Ponnuru has a new article, “The Tax Cut Doesn’t ‘Tilt Toward the Middle Class.” The piece apparently responds to commentary by Veronique de Rugy and me about the effects of the GOP tax plan.

Ramesh says:

According to the Joint Committee on Taxation (JCT), households making between $20,000 and $30,000 pay 0.7 percent of all federal taxes now and will pay 0.8 percent of them under this law in 2025 … Households making $30-40,000 pay 1.3 percent of federal taxes now and will pay 1.4 percent of them in 2025. Households making between $40,000 and $75,000 will see their share of federal taxes unchanged at 10.2 percent.

His point is, “the tax cut reduces tax burdens proportionally,” rather than giving the biggest cuts to the middle, as I found here and here.

Alas, Ramesh used the wrong data. The tables published on the JCT website include reduced subsidies from repeal of the ACA individual mandate. Those would be almost entirely spending cuts, not tax increases. (This JCT score shows that the ACA effect will be $314 billion over 10 years, of which $297 billion, or 95 percent, will be spending).  

The JCT produces tables without the ACA subsidies, but they are not posted on the JCT site, in a typical example of the agency’s nontransparency. Phil Kerpen received them from GOP staffers, and they are attached below.

Anyway, here are Ramesh’s points rewritten from the JCT 2025 table that excludes the ACA piece:

Households making between $20,000 and $30,000 pay 0.7 percent of all federal taxes now and will pay 0.6 percent in 2025. Households making $30,000 to 40,000 pay 1.3 percent of federal taxes now and will pay 1.3 percent in 2025. Households making $40,000 to $50,000 will see their share of federal taxes fall from 2.2 to 2.1 percent, and households making $50,000 to $75,000 will see their share fall from 8.0 to 7.9 percent.

The non-ACA JCT table shows that the percentage tax cuts for the middle groups in 2025 are larger than the cuts for the top groups. So even aside from the (misguided) payroll tax issue raised by Ramesh, the JCT table shows that the GOP bill especially favors the middle class and will make the tax code more progressive (unfortunately).

Here is the JCT table.

The peculiarity of Congressional 10-year budgeting has left its mark on the tax debate. In the UK, if something like the Republican bill had passed, it would be regarded as a significant tax cut, pretty much across the board. And rightly so.

As JCT analysis has shown, in 2019, 44 percent would see tax cuts of more than $500, 17 percent tax cuts between $100 and $500, with just 8.1 percent seeing tax increases greater than $100. Even by 2025, just before most of the individual income tax cuts would expire, 56 percent would see tax cuts of more than $100, with just 13.5 percent seeing tax increases of $100 or more. And this includes as “tax rises” the reduction in subsidies paid out as the removal of the individual mandate penalty leads to fewer people opting for health insurance.

As Chris Edwards has explained, even on the JCT’s own figures (which attribute most of the burden of corporate income taxes to the rich), the biggest financial winners in terms of a reduction in the proportion of federal income and corporate taxes they bear will be the middle-class.

Yet the 10-year budget, with expirations of income tax changes required to pass the bill through Senate reconciliation procedures, means Democrats and much of the media have effectively portrayed the reforms as tax cuts for the wealthy. As the income tax cuts and the increase in standard deduction evaporate, the penalty associated with the individual mandate is removed (reducing the extent of subsidies) and the new lower inflation rate for uprating tax band thresholds is maintained, more and more households lower down notionally face a “tax increase” in financial terms according to the law.

The way the media has not explained this distinction between the short and longer-term implications of the law (and how it would be up to Congress to let provisions expire) is breathtaking. On Tuesday, for example, the Associated Press tweeted “BREAKING: House passes first rewrite of nation’s tax laws in three decades, providing steep tax cuts for businesses, the wealthy.” No wonder just 17 percent of people think they are getting tax cuts in 2018, against the 80 percent estimated to actually be getting a tax cut of any amount. Liberal economists such as Paul Krugman have embraced the seeming unpopularity of the reform package, and believe the political and electoral implications for Republicans will only be worse once they now start proposing spending cuts.

The Republicans say they want to keep the provisions in the bill in the longer term, making the tax cuts permanent. So what should their message be to voters to make tax reform durable?

First, it seems clear they need to make a huge deal of the expanded paychecks most people will see in February. Given how warped people’s view is of the bill now, critics of the bill will have their credibility undermined if individual voters suddenly realize they really have seen higher take-home pay.

But, second, and more importantly, Republican proponents need to flip critics’ attack lines around. Yes, under the law the income tax changes do expire, they should say. But we do not want that to happen. If you like your tax cut, and want to keep your tax cut, then you need to ensure it has Congressional support, and you should pressure your congressmen and congresswomen to curb spending growth so that the tax cuts can be locked-in sustainably.

In other words, they need to use the new baseline from the tax cuts to their advantage, and play on the endowment effect: if you want to keep this extra take-home pay, then push for lower spending delivered by members of Congress committed to smaller government.

Several days ago a colleague of mine, having been sent a copy of the Niskanen Center’s recent conspectus, wondered whether Bill Niskanen, the former Chairman of the Cato Institute after whom the Niskanen Center is named, would have agreed with a claim it made. The claim was that promoting sound monetary policy was basically a matter of encouraging “policymakers to support the Federal Reserve’s dual-mandate” and of getting “pro-growth” candidates appointed to the Board of Governors.

My short answer to the question was, “No.” But it occurs to me that that answer is worth fleshing-out here, because many people may not be familiar with Niskanen’s ideas for improving monetary policy, and because those ideas show that he was far from being a cheerleader for the status quo, or for a more “pro-growth” version of the status quo, whatever that might mean.

The Dual Mandate

For one thing, Niskanen was no fan of the dual mandate. That mandate had its roots in the 1946 Full Employment Act and was formally established by the 1978 Full Employment and Balanced Growth Act, a.k.a. the Humphrey-Hawkins Act. The latter act originally gave the Fed five years to reduce the overall (16 years or older) unemployment rate to 4 percent, while getting inflation down to 3 percent. The assumption that these goals were perfectly compatible rested, at least implicitly, on legislators’ belief in the presence of a stable Phillips Curve, implying a negative relationship between the rate of inflation and the rate of unemployment. Yet that belief had already been discredited by empirical developments by the time the legislation was passed.

It did not take long after the passage of Humphrey-Hawkins for wiser Federal Reserve officials, including Paul Volcker (who became Chair in 1979), to conclude that the “dual mandate,” far from defining a new and sustainable approach to monetary policy, was simply a nuisance — something they had to pay lip service to, whilst really concerning themselves with keeping a lid on inflation. For the most part they managed this by insisting that, in the long run at least, price stability was itself the best guarantee of “full employment.”

Bill Niskanen shared that perspective. Like all monetary economists who take empirical evidence seriously, he knew that the stable Phillips Curve was a myth, while regretting that other “macroeconomists have confused each other, generations of students, and too many policymakers” by pretending otherwise. Indeed, the evidence for the period between 1960 and 2001 suggested a “strong positive relation between the unemployment rate and the inflation rate lagged one or two years.” That meant that the best way to achieve a minimum long-run unemployment rate really was to aim at a zero steady state inflation rate.

In short, so far as Niskanen was concerned, the dual mandate was one mandate too many. If anyone doubts it, I invite them to review the opening passages of Niskanen’s entry on “Monetary Policy and Financial Regulation” for the 2008 edition of Cato’s Handbook for Policymakers. “For the past 30 years,” Niskanen observes,

the Full Employment and Balanced Growth Act of 1978 instructed the Board of Governors of the Federal Reserve to establish a monetary policy to maintain long-term economic growth and minimum inflation. As these two goals are sometimes inconsistent, this congressional guidance has not been very effective. The Federal Reserve has had almost full discretion in the conduct of monetary policy, subject only to the balance of current political concerns.

The intent of Congress would be better served and monetary policy would be more effective if Congress instructed the Federal Reserve to establish a monetary policy that reflects both their [i.e. Congress’s] concerns in a single target.

A Nominal Spending Target

Yet Niskanen did not favor the single-minded pursuit of zero inflation. Although he preferred a zero steady-state (or long-run) rate of inflation, he believed that that long-run objective was best achieved, not by having the central bank directly target some measure of the price level or inflation rate, but by having it target the growth rate of total spending on goods and services, as measured by the Department of Commerce’s statistical series “final sales to domestic purchasers.”

A final demand target, Niskanen explained in a 1992 Cato Journal article, is better than a price level or inflation target “because of the different response to changes in supply conditions.” Whereas a central bank that stabilizes spending “would not respond to either positive or negative supply shocks,” one that endeavored to stabilize the price level at all times would seek to increase the money stock and spending to keep prices from falling in response to a positive supply shock, and would seek to reduce the money stock and spending to keep prices from rising in response to a negative supply shock. While either approach could be consistent with achieving a zero long-run inflation rate, targeting demand reduces the variance of output.

Although Niskanen’s choice of a demand measure distinguishes his proposal from those of Scott Sumner and some other Market Monetarists, who would have the Fed stabilize nominal GDP rather than final sales, the difference is one of second-order importance only.[1] Also like some Market Monetarists, and unlike apologists for the monetary status quo, Niskanen favored a monetary rule imposed upon the Fed by Congress, as opposed to unbridled monetary discretion. Congress, he observed in that 1992 article, has delegated its Constitutional authority to “coin money” to the Fed

either without guidance or, more recently, with sufficiently confused, redundant, or contradictory guidance to permit the Fed to chart its own course. We could do worse. The performance of the Federal Reserve has usually been better than that of most other central banks.

I believe we can also do better — much better… .

We could do better, Niskansen said, by having Congress “approve a target path of total demand in the American economy,” specifically by passing legislation “that would formally instruct the Fed to follow a specific target path of nominal domestic final sales,” and by having “the administration and Congress…monitor the Fed’s performance” as often as once every quarter. That monitoring

should focus on the reasons why actual final sales may have differed from the target path in the previous quarter. An increasing difference between the actual and the target final sales over a period as long as two quarters should automatically trigger… a review. There is ample reason to criticize the Fed for an accumulating difference between the actual final sales path and the approved target path. But as long as the Fed maintains a roughly stable level of final sales relative to this path, both the administration and Congress should refrain from criticizing the Fed… .

In his 2008 Cato Handbook chapter, Niskanen offers more specific advice. Congress would be wise, he says,

(1) to specify a target rate of increase of final sales and (2) to instruct the Federal Reserve to minimize the variance around this target rate. The target rate of increase of final sales may best be about 5 percent a year, sufficient to finance a realistic rate of economic growth of 3 percent and an acceptable rate of inflation of about 2 percent.

Niskanen goes on here to accuse the Fed of “creating three ‘bubbles’ of aggregate demand” — between 1987 and 1991, 1997 and 2000, and 2002-2006 — each of which in turn contributed to bubbles in other markets, followed by recessions. In every instance, Niskanen argues, the Fed appeared to overreact to a previous financial crisis by allowing demand to increase relative to its target path, instead of merely taking steps “to avoid a decline in the growth of demand relative to the target path.”

Observe that Niskanen’s proposal would place the Fed on a much tighter leash than the one contained in the FORM (Fed Oversight and Modernization) Act, both in its original, 2015 version  and as incorporated in the latest version of the CHOICE Act. Unlike Niskanen’s plan, the FORM Act  leaves the choice of a specific monetary rule entirely to the FOMC.

Last Resort Lending

Besides wanting to place strict limits on the Fed’s conduct of monetary policy, Niskanen also wanted to curb its emergency lending powers. In particular, he opposed the de facto broadening of those powers that took place during the first months of the most recent financial crisis, observing (again in the Cato Handbook) that

the combination of deposit insurance and access to the [Fed’s] discount window created a serious level of moral hazard that reduced the incentive of both depositors and banks to avoid adverse risks. Adding securities firms and the government-sponsored mortgage firms to the list of financial firms eligible for access to the discount window and subject to regulation by the Federal Reserve would only expand the level of moral hazard in the financial system.

Rather than have it permit a permanent broadening of the Fed’s lending powers, Niskanen urged Congress to “consider amending the Federal Reserve Act of 1913 to restrict access to the discount window to depository institutions only.” Here again, Niskanen goes further than the CHOICE Act, in essentially proposing a complete repeal of the Federal Reserve Act’s section 13(3). The CHOICE Act, in contrast, would still allow the Fed to make emergency loans to non-banks, albeit on more strictly regulated terms, and only if the presidents of nine Reserve Banks (along with five members of the Federal Reserve Board and the Treasury Secretary) agree that allowing the firms in question to fail would “pose a threat to the financial stability of the United States.”

Against Central Banking?

The reforms Niskanen favored show that he was far from being a monetary policy conservative, to give that adjective its literal meaning. But was Niskanen really a monetary policy “radical”? Sure, he wanted to limit the Fed’s powers. But that hardly means that he questioned the need for a Federal Reserve System, or some other sort of central bank.

Yet question it he did. What’s more, he ultimately became convinced that we would, in principle at least, be better off without central banks. I ought to know, because I’m the one who convinced him!

The occasion was the 7th installment of Cato’s Annual Monetary Conference, in 1989, at which I presented my paper “Legal Restrictions, Financial Weakening and the Lender of Last Resort.” The argument of that paper is, essentially, that financial systems would be robust enough to avoid major crises altogether, and to do so without the help of central banks, were it not for government meddling, including central bank misconduct, that makes them unnaturally fragile.[2]

Niskanen, who was asked to comment on my paper, began his remarks as follows:

May I make a confession. In some areas of public policy I sense that my views are usually radical, in that I am prepared to promise a substantial reduction of the contemporary role of government. In other areas my views are more conservative, more from lack of understanding than from any conviction that the status quo is appropriate.

George Selgin has convinced me that my conservative acquiescence to the contemporary role of central banks has been misplaced. I had long recognized that central banks were the primary agents of both major recessions and sustained inflation, but I had casually accepted the argument that a lender of last resort and a monopoly of note issue were necessary to prevent panics in a fractional-reserve banking system. …[It] is increasingly clear that the conventional arguments for a central bank are second-best arguments that assume the restrictions that have increased the vulnerability of private banks.

To be sure, Niskanen’s new-found understanding didn’t cause him to propose that the Federal Reserve Act be repealed in its entirety! It merely caused him to believe that an alternative set of arrangements “would be better… if it could be implemented without transition costs.” The challenge is to come up with a transition process that would make the change worth it despite its short-run costs.

Of course I, too, would rather we chip away at the Fed’s powers than risk raising havoc by trying to “end” it in one fell swoop. The same goes for many of my fellow free bankers. So Niskanen’s position is actually no less radical than ours.

In portraying Bill Niskanen as a monetary policy radical, I’ve limited myself to his views on the Fed and central banking more generally, without venturing to consider what he had to say about other financial regulatory agencies. But readers may rest assured that his views concerning many of these were equally radical. Had Niskanen had his way, Congress would have done away with Fannie and Freddie, the Community Reinvestment Act, and U.S. support for the IMF; and I’m pretty sure that with a little more digging the list could be made much longer. One thing, though, is certain: Niskanen was never one to settle for conventional wisdom. As he himself explained, when he didn’t question some aspect of the status quo, more often than not it was because he hadn’t yet had a chance to noodle around with other options.

____________________
[1] Unlike final sales, nominal GDP includes spending on private inventories and net imports.

[2] The thesis is essentially the same as that expounded at greater length by Charles Calomiris and Stephen Haber in their 2014 book, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit.

[Cross-posted from Alt-M.org]

Republicans have enacted the Tax Cuts and Jobs Act, the largest tax overhaul since 1986. While many people seem to think that the legislation favors the rich, it actually delivers the largest relative tax cuts to the middle class. That is clear if you dig beneath the surface of estimates from the liberal Tax Policy Center (TPC).

TPC’s new analysis shows tax changes for the final GOP bill for households by income quintile (or fifth). But the data is not presented in a neutral context to understand the relative sizes of tax cuts for each group. I present TPC data in context in the table below.

Column 1 shows the GOP tax cuts as a percent of income in 2018 from the new TPC study.

Column 2 shows total current federal taxes (income, payroll, excise, and estate) as a percent of income for 2018, estimated by TPC here.

Column 3 shows the GOP cuts (column 1) as a percent of total current taxes (column 2). The cuts are fairly equal across-the-board, although a little smaller at the top.

However, the tax bill does not change payroll taxes, so including them in the denominator of the column 3 calculation slants the results. Column 4 removes them. (The tax bill tweaks a few minor excise taxes, but with little effect on overall excise revenues, so I removed them also).

Column 4 shows TPC estimates of current-law income and estate taxes for 2018. The bottom two quintiles are negative because those groups do not pay any income and estate taxes, on net.

Column 5 shows the GOP cuts (column 1) as a percent of total current-law income and estate taxes (column 4). Middle-income households will receive a 28 percent tax cut, which is substantially larger than the cuts received by the higher income groups.

This is the fairest way to present the effects of the Republican tax bill. It indicates that for 2018, the tax changes will make the federal tax system more progressive. The GOP tax bill will result in higher earners paying a larger share of the overall federal tax burden.

 

A similar analysis of the official Joint Tax Committee data is here.

The House GOP leadership must be at least somewhat worried about the prospects for passage of their Foreign Intelligence Surveillance Amendments Act (FAA) Sec. 702 bill, HR 4478, which the House Rules Committee will consider later today in an “emergency” session.

I say this because this morning, the House GOP leadership circulated a wanted poster-style flyer of a dead man: Haji Iman, the alleged ISIS deputy finance minister and second in command to ISIS leader Abu Bakr al-Baghdadi, who was killed in eastern Syria on March 25, 2016. The flyer puts the phrase “ISIS” in a huge font, just in case the reader wasn’t getting the message.

Claiming that “Iman would still be plotting to kill Americans without Section 702,” the flyer then makes an interesting admission: that the search for Iman “was ultimately successful based almost exclusively on intelligence activities under Section 702” (emphasis added).

Not only does the flyer provide no proof that Iman was planning attacks on the United States, it omits the fact that both the Iraqi and U.S. governments had previously claimed repeatedly that Iman had been killed—six times, in fact.

As I’ve noted previously, two other major post-9/11 surveillance programs—the illegal STELLAR WIND mass surveillance program, and the PATRIOT Act’s Sec. 215 telephone metadata collection program—failed to stop a single attack on America. If it took the NSA two years to find Iman using Section 702 “almost exclusively” after claiming repeatedly the man was dead, it should raise major questions about the veracity of the official government (and now House GOP leadership) account of this incident and the effectiveness of the Section 702 program.

And then there’s that tantalizing phrase—”almost exclusively.”

The flyer admits that programs besides Section 702 were responsible for finally—allegedly—killing Iman. So Section 702 collection was not, apparently, a “but for” capability (i.e., but for Section 702, Iman would still be alive). How effective is Secton 702? We don’t know. There’s never been an independent, case-by-case audit of claimed Section 702 “successes” during the nearly 10-year life of the program. And the bill being considered by the House Rules Committee today does not call for such an audit.

What the flyer also doesn’t say is that as written, HR 4788 would effectively expand warrantless surveillance under Section 702, including potentially against purely domestic targets. Given the abuses of the Section 702 program that have been exposed over the past several years, HR 4478 is an amazing statement of the contempt the House GOP leadership has for the Fourth Amendment rights of Americans.

There is a lot of circumstantial evidence pointing to electoral fraud in Honduras’ presidential election. Yet neither the opposition nor international electoral observers have conclusively demonstrated that such has occurred. In other words, there is a lot of gun smoke in the room, but no smoking gun.

Perhaps the most damning piece of circumstantial evidence so far is a statistical analysis by Georgetown professor Irfan Noorudin at the request of the Organization of American States (OAS). It demonstrates that:

The Honduran national election of 2017 experienced a dramatic vote swing away from the opposition alliance and towards the incumbent National Party. This analysis raises doubts about the plausibility of such a reversal of fortunes. If one believes the vote tallies to be accurate, it is plausible to have such a swing. But the pattern of votes, particularly in turnout rates, is suspicious. As documented above, there’s a marked break in the data that is hard to explain as pure chance.

Noorudin firmly concludes: “On the basis of this analysis, I would reject the proposition that the National Party won the election legitimately.”

Partly based on this analysis, the OAS Electoral Observation Mission in Honduras stated it could not be certain about the validity of the results. OAS Secretary General Luis Almagro has called for a new election.

But despite how compelling Noorudin’s analysis is, there is still a missing link that he mentions: the vote tallies from polling stations. Up until now, neither the opposition nor international observers have presented evidence showing that the vote tallies were systematically altered.

Given the magnitude of the alleged fraud—a little over 50,000 votes to swing the election—one would expect that during the recount the international observers would have discovered plenty of evidence of how vote tallies were tampered with or did not match the amount of votes registered in each ballot box. While the OAS found irregularities in a “small number” of vote tallies, it does not mention anything significant enough to change the result.

Thus, all the suspicion lies on how the computer system went down when opposition candidate Salvador Nasralla was ahead with 57% of vote tallies counted and the subsequent dramatic (and statistically implausible) swing in favor of president Juan Orlando Hernández. However, the results announced by the Electoral Tribunal are ultimately backed up by physical vote tallies from each polling station.

And that is the conundrum: Either widespread fraud was conducted with surgical precision up to a point where a multitude of international observers cannot conclusively prove that it happened, or the statistically implausible actually happened and Hernández won the election fairly.

The wreck of the 501–the Amtrak train that crashed near Seattle on Monday–is raising lots of questions about Amtrak operations, but they aren’t always the right ones. Here are some questions that should be asked and some of my preliminary answers. Answers from Amtrak (the operator), FRA (the funder), Sound Transit (the track owner), or WSDOT (the train owner) may differ.

1. Congress required passenger railroads to install positive train control (PTC) by the end of 2015. Why did the Federal Railroad Administration (FRA) give money to the Washington Department of Transportation (WSDOT) for a new passenger rail line that would not open until after 2015 when the project didn’t guarantee funding for positive train control?

Answer: The Obama administration wanted to distribute high-speed rail funds to as many states as possible in order to build political backing for the program, so it couldn’t be bothered with positive train control. The tracks the train was on are owned by Sound Transit, which says it is installing PTC, but it won’t be finished until spring. Public releases of WSDOT’s application for funds for this train didn’t mention PTC.

2. Around 800 people die in railroad accidents a year. PTC would prevent only about 1 percent of these fatalities; far more would be saved by spending the same amount of money on better grade crossings and fencing of rail rights of way. Why do we put so much emphasis on an expensive technology that will do so little?

Answer: Accidents that PTC could have prevented tend to be more spectacular than people getting killed when a train hits their car at a grade crossing. This suggests that, when politicians decide where private businesses spend their money, it’ll get spent on grandiose programs rather than things that could really make a difference.

3. When an auto driver runs a red light and kills a pedestrian, we don’t blame the auto maker for not making driverless cars sooner; we blame the driver and, perhaps, the people who were supposed to train the driver. Why blame this accident on the lack of positive train control when the train driver should have slowed down and Amtrak should have made sure the driver was qualified to operate this section of track?

Answer: Everyone is looking for a scapegoat, and it is easier to blame an institution than an individual.

4. The train in question had about 250 seats, and this was the inaugural run on this route, which usually generates a lot of interest among rail enthusiasts. Yet there were only 80 passengers on board. Does this confirm that Lakewood Mayor Don Anderson was right when he said “this project was never needed”?

Answer: The big change in Seattle-Portland service was not an increase in speeds but an increase in frequencies (a change that may be delayed by the wreck of one of the new train sets funded by the federal government). Amtrak has only been able to fill 54 percent of this train’s seats, and WSDOT was hoping that more frequent and more reliable trains would increase the percentage of seats filled. We’ll know more after a year or so, but it doesn’t look good if the inaugural run filled less than a third of the seats.

5. Why do so many reporters call this a high-speed train? The top speed between Portland and Seattle is 79 mph, the same as it has always been and the same as most other Amtrak routes. In technical terms, this was a conventional, low-speed train.

Answer: Though this was a low-speed train, it was funded by Obama’s high-speed rail fund. By repeatedly using the term “high-speed trains,” reporters are keeping that idea in the public consciousness, perhaps in the hopes that Trump’s infrastructure plan will include money for more such trains. (This could backfire, however, by making people think that high-speed trains are more dangerous. They aren’t–but they are a lot more expensive.)

6. Why do we need passenger trains at all? Amtrak fares from Seattle to Portland start at $26 and cover less than half the costs of the train. Bolt Bus has six buses a day that take less time than the train at fares of around $15. Plane fares start at $65, though most are around $100 (which may still be less than the full costs of Amtrak), and there are dozens of flights a day.

Short-distance trains were made obsolete by buses in the 1920s. Long-distance trains were made obsolete by planes in the 1950s. When other transportation technologies, such as horseback riding, steamboats, and canals went obsolete, we let them go. Why can’t we let go of the passenger train?

Answer: America was suffering an inferiority complex in the early 1960s. We were losing the space race; some thought there was a missile gap with Russia; Japanese electronics were beginning to take over American markets. When Japan introduced its bullet trains in 1964, suddenly there was one more area in which our technology appeared to be inferior. Never mind that our jet airplanes were several times faster than Japan’s trains; Congress began funding passenger trains in 1965, and once a federal program gets started, it generates special interest groups dedicated to keeping it going.

Question: At least Amtrak is getting closer to covering its operating costs, right?

Answer: No, when Amtrak says that, it is lying. Amtrak counts more than $200 million in annual subsidies that it gets from the states as “passenger revenues.” Amtrak also pretends depreciation is zero even though, at more than $800 million per year, it is the second largest line item on its operating budget. Amtrak’s deferred maintenance has led to a backlog of needs in the tens of billions of dollars. When counting only ticket fares and on-board food service revenues against operating costs, including depreciation, Amtrak operations lose more than $1 billion a year and ticket fares cover only a little more than half the costs.

Question: At least Amtrak’s Northeast Corridor makes money, right?

Answer: Only if you don’t count depreciation, deferred maintenance, or other costs that Amtrak doesn’t try to allocate to individual routes. The Northeast Corridor needs at least $35 billion in rehabilitation work just to bring it up to a state of good repair. Another way Amtrak has made its trains appear to be profitable is by calling much of its maintenance work a capital cost, and Amtrak can’t afford to do all of the “basic infrastructure” maintenance needed in the Northeast Corridor, much less the rehabilitation work, without federal subsidies of around $500 million dollars per year (see page 15).

Question: So is Amtrak’s maintenance backlog only in the Northeast Corridor?

Answer: No, Amtrak doesn’t own most of the tracks it uses outside of the Northeast Corridor, but it still has maintenance needs for its stations and rolling stock. When Amtrak took over private passenger service in 1971, the average age of passenger cars that it acquired from the railroads was 22 years, and they were so worn out that nearly all were replaced within a decade. Today, the average age of Amtrak’s passenger cars is more than 30 years, suggesting that it will soon need to spend billions replacing them.

Question: So are all trains obsolete?

Answer: No, only passenger trains are obsolete. Freight trains are extremely productive, and America has the finest, most advanced rail system in the world. That’s because it is mostly private and operates to produce profits, not to give politicians ribbon-cutting opportunities.

Republicans are set to pass the largest federal tax overhaul in decades. The centerpiece of the bill is a reduction of the corporate tax rate from 35 to 21 percent. That reform will help attract global investment to America and boost capital spending, hiring, and wages over time.

House Speaker Paul Ryan of Wisconsin deserves chief credit for the reform. Ryan has pushed tax reform for years, and he keenly understands how high business taxes are undermining U.S. economic growth. Ways and Means chair Kevin Brady of Texas has also worked tirelessly for reform.

Ryan read our book Global Tax Revolution when it came out in 2008, and he discussed some of the themes at a Cato forum on Capitol Hill in 2009. At the time, he was the ranking member on the House Budget Committee. Here are some of his comments:

If you haven’t read this book you should, the book by Chris Edwards and Dan Mitchell. If you go to pages 46 and 47, you will see America is slipping in worldwide competition. America is behind the curve when it comes to the way we tax our businesses and companies, and we’re losing jobs because of it.

… Whether you like it or not, we are in the 21st century global economy. And it matters what the incentives are for the kinds of businesses we want to keep and attract and grow jobs in America.

The GOP tax legislation headed for the president’s desk this week has plenty of flaws, but the corporate reforms are long overdue. At Cato, we have been educating policymakers and the public on the issue since at least this 2002 study on International Tax Competition (co-authored with Veronique de Rugy), as have scholars at Tax Foundation, Heritage Foundation, and other think tanks. It is gratifying that policymakers such as Ryan listened, and have finally moved Congress to make reforms.

The Republican tax bill not only cuts taxes, but also increases spending through refundable tax credits. The plan will increase spending directly by increasing child tax credits, and increase spending indirectly by changing low-income provisions that affect spending on the earned income tax credit (EITC).

The chart shows estimated fiscal 2017 and 2019 outlays on the EITC, child credit, and American Opportunity Tax Credit (AOTC). The 2019 figure includes a $12.6 billion increase from the GOP tax bill, as estimated by the Joint Committee on Taxation in endnote 2 in here. (I’ve excluded the ACA piece).

Outlays on refundable credits or subsidies will jump from $85.1 billion in 2017 to an estimated $97.7 billion in 2019. This amount is not a “tax cut.” Rather, it represents taxes extracted from other workers and businesses, having all the usual negative effects.

 

See here for a critique of the EITC.

Current law spending on the EITC, child credit, and AOTC in the budget (Table 26-1). 

National security strategies are strange beasts. Their glittering generalities and kitchen sink approach to detailing threats, interests, and priorities can make it difficult to know how literally, or seriously, to take them. All strategies reflect on the importance of American leadership and bask in the warmth of American values. And thanks to the growing bipartisan consensus around primacy since the end of the Cold War all strategies have more or less looked the same. Each one promises a stronger and safer America with help from our trusted allies. Given this, most Americans would be hard pressed to tell one national security strategy from the next.

Sadly, Trump’s 2017 National Security Strategy contains not only the worst elements from the past, namely the pursuit of primacy and a commitment to an endless war on terrorism, but also charts new territory by embracing a new nationalism that unnecessarily elevates immigration to a national security threat and retreats from the post-World War II commitment to free trade.

Though Trump’s penchant for military solutions has always been obvious, the extent to which his new security strategy embraces primacy is disappointing. As a candidate, Trump railed against the war in Iraq and nation building abroad. The national security strategy, however, calls for the United States to “compete with all tools of national power to ensure that regions of the world are not dominated by one power.” The strategy also calls for an expanded – and unending – war on terrorism. In short, Trump intends to commit the United States not only to a globe-straddling military presence and to counterproductive and unending military intervention, but also to risking conflict with nations like China over regional issues that mean very little for American national security. 

Unsurprisingly, given the turn to primacy, Trump’s strategy also calls for “rebuilding” America’s military, despite the fact that the United States already possesses the world’s most powerful military, spends more on defense than the next seven nations combined, and enjoys an alliance system that far outstrips those of Russia or China. In the end, any boost in defense spending will only add to the national debt while doing little for American security.

With regard to the economic side of foreign policy, Trump’s abandonment of decades of American support for international free trade regimes signals a dangerous form of economic nationalism. Trump’s withdrawal from the Trans-Pacific Partnership, his criticism of NAFTA, and his repeated complaints about the use of unfair trading practices by China, Japan, and other trading partners, make it clear that Trump either does not understand or does not trust the process by which the United States and the rest of the world rebuilt the global economy after World War II. Contrary to Trump’s insistences, however, protectionism and trade wars will do nothing to make America great again.

Finally, Trump’s inclusion of immigration, legal and illegal, as one of the major components of the national security strategy is not only unprecedented, but it smacks of a nativism that identifies threats not based on objective metrics but on cultural differences and vague notions of “us versus them.” None of Trump’s proposed policies, from building a border wall to banning travelers from Muslim-majority nations to extreme vetting or reducing legal immigration, are based on solid evidence about likely harms to Americans. None of these policies will improve national security. Instead, Trump’s strategy is only likely to inflame tensions among races, nations, and religious groups.

Experience with previous national security documents suggests that we should treat Trump’s new strategy more as a guide than as gospel. It’s a safe bet that Trump, even more than most presidents, will deviate from the script as threats arise and opportunities emerge. But to the extent that Trump follows his new playbook, we can expect many of the same problems that have bedeviled U.S. foreign policy for the past sixteen years along with a host of new ones.

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